Stalled IHH-Fortis merger a blessing in disguise
DESPITE probably feeling snubbed, IHH Healthcare Bhd may just have actually got itself a blessing in disguise when the news broke that it is facing some hiccups to proceed with the plan to acquire Fortis Healthcare Ltd.
Given recent developments on the direction at Khazanah Nasional Bhd, which is the majority shareholder at IHH and is reported to not be in favour of the deal, questions then arise today if the company could then weave its way out of this seemingly complicated deal that has been difficult to secure.
On Thursday, it was reported on the Nikkei Asian Review that a court order had forced the planned acquisition to take a backseat following the order that was filed by Japanese drugmaker Daiichi Sankyo through the Delhi High Court to block the pending deal.
Issues are coming to the surface now that the brothers who founded Fortis – Malvinder and Shivinder Singh – were ordered in January to pay 35 billion rupees (US$510mil or RM2.075bil) in damages to Daiichi Sankyo over the sale of Ranbaxy Laboratories, which is a generic drugmaker.
The report said that the founders were also found to have withheld critical information from Daiichi Sankyo when they sold their stakes in Ranbaxy in 2008.
With the payment yet to be made, Daiichi Sankyo is protesting the Fortis sale, and the latest court order could delay the timeline of the acquisition.
Observers also say that with the new developing issues pertaining to what’s happening at Fortis, it might be a good time for IHH to take a backseat and rethink its position on this acquisition, given that India can really be a challenging landscape to be in especially for foreigners.
“It could just be a blessing in disguise. I would also then like to know if proper due diligence have been made given what is developing here.
“Psychology dictates that when something is hard to get then it is all the more treasured, but maybe they should take a backseat and think about it properly.
“But on the other hand if all critical questions had really been satisfactorily answered then the deal should go ahead since it is a growth opportunity there,” the observer says.
“Also don’t forget how tycoon Ananda Krishnan’s India dream with the acquisition of mobile service provider Aircel Ltd US$7bil (RM28.6bil) investment seems to be going down in tatters after Aircel filed for bankruptcy at the end of February,” he adds.
According to reports, Aircel which is 74% owned by Maxis Communications Bhd, had debts amounting to 155 billion rupees ($2.38bil or RM9.72bil) which had also tried unsuccessfully to restructure its debt.
Despite that, appetite for Fortis still runs high and market sources are indicating that the consortium of Manipal Health Enterprises and private equity firm TPG are
already readying their ammo for possibly another round of bidding should the roadblock eventually dash the planned merger.
According to a report on Indiabased economic website ETPrime. com, Fortis’ newly appointed chairman Ravi Rajagopal says that the court move to block the pending IHH-Fortis deal came as a “surprise”.
“We were not party to any arbitration proceedings. We were not even mentioned in any of the court rulings. We think the risk to Fortis is remote (at this juncture). Some of the contentions that were made, say about not alienating the promoters’ holdings in Fortis, do not ring true,” Ravi says in the report.
“Under India’s law, a legitimate transfer of shares – and in this case it was some banks that had pledged shares – cannot be ignored, and certainly at the time when there was no restraint order on us. So we don’t see where it is going. It is unfortunate that this has come up, especially when we are trying to sort things out – not just for the shareholders but also employees and patients,” he adds.
Ravi, who came in as Fortis’ new chairman some three months back, says that one of his key responsibilities was to ensure accurate representation of its annual accounts.
“It was to reflect all misgivings accurately in the annual accounts in close association with the auditors, Deloitte. We made sure that the provisioning was to the extent that satisfied not only the auditors, but hopefully the regulators and certainly our shareholders,” Ravi says.
“Once (the) accounts were taken care of, we announced a fresh bidding process. We ensured the process was transparent and the feed- back we have got indicates our success,” he adds.
For all that’s happened pursuant to this merger, Fortis needs a white knight to help it turnaround as well.
The potential acquirer, once they are able to fix these issues would be able to get immediate exposure into a market that is growing at a rate that is comparatively higher than most other countries.
If the IHH-Fortis acquisition still proceeds and eventually happens, IHH’s CEO Dr Tan See Leng said in July that the group has to pump in 40 billion rupees to normalise the company’s operations.
Fortis is in desperate need to cover overheads like rental costs, payments of wages and bonuses including its vendors.
It would provide the much needed cash that is necessary to ensure the return to normalcy of its dayto-day operations, Tan says then when Fortis accepted its investment proposal.
On this front, IHH had earlier said that it was confident of turning things around at Fortis, banking on its superior credit profile to optimise the debt funding costs and realign the credit lines for Fortis.